(PDF) Introduction to Management Accounting - Assignment

Management Accounting
Loading the player...

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Management accounting and requirement of its systems................................................1
P2: Different types of management accounting reports.........................................................4
M1: Importance of different management system..................................................................5
D1: Various reporting method and accounting system integration........................................6
TASK 2............................................................................................................................................6
P3: Techniques used to analyse cost with marginal and absorption costs.............................6
M2: Analysis of various types of accounting tools and techniques.......................................9
D2: Analysis of data collection..............................................................................................9
TASK 3............................................................................................................................................9
P4: Different planning tools used for budgetary control........................................................9
M3 Analysis of various planning tool and its application for forecasting...........................11
TASK 4..........................................................................................................................................12
P5: Different financial tools to resolve company's financial issues.....................................12
M4 Analysis of planning tool to deal with financial issue...................................................13
D3: Evaluation of planning tools for accounting respond appropriately to solving financial
problems...............................................................................................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting is an analysis and communication of relevant and useful
information collected with the help of financial and cost accounting to the management of an
organisation. It assist them to make profitable decision and effective policies for the company
and bring them ahead in the competition among their rivals in the market. It performs various
activities such as creation of budget, perform asset, cost management and preparation of various
reports. The present assignment is based on the case study of Ever Joy Enterprise which is
engaged in leisure and entertainment industry in UK. The company as approached Deloitte UK
which is one of the leading professional services network deals in providing financial advisory to
prepare a draft for their management accounting department. The report describes the various
accounting systems in addition with their essential requirements, management accounting
reporting systems along with their benefits, different methods of costing, planning tools to
control budget and financial tools to resolving financial issues of an organisation.
TASK 1
P1: Management accounting and requirement of its systems
Management accounting:
It refers to an activity of analysing and interpreting relevant and useful informations of all
departments to formulate an effective plans and policies to achieve organisational goals and
objectives. It assist management to make decisions on daily basis through properly examining
the management report and financial accounts that are prepared on timely basis (Callahan, Stetz,
and Brooks, 2011).
Financial accounting:
Financial accounting refers to an activity of preparing financial statements of an
organisation such as Profit & Loss a/c, Balance sheet, Cash flow statement etc. which determines
the actual and accurate financial position of company. It helps outside parties to an organisation
such as investors, creditors and industry regulators to make decisions regarding making further
transactions with company.
Difference between Management accounting and Financial accounting:
Particular Management Accounting Financial Accounting
1

Objective The principle objective of
management accounting is to
help the managers in making
profitable decisions and
suitable planning.
The main objective is to enable
outside parties of an
organisation to make decision
further investment in company
through presenting financial
statements towards them.
Information It provides the qualitative and
quantitative information’s.
It only provides the
quantitative information.
Time The reports are prepared
according to the organisational
needs.
As financial reports are
prepared at the end of financial
year.
Users This report containing
information can be utilised
only by the internal
management.
These financial reports
containing informations related
with financial transactions
made by company can be
utilised by both internal and
external parties.
Publishing and auditing These reports are neither
published by the organisation
nor audited by auditors.
It is compulsorily required to
be published and audited by
the statutory auditors.
Management accounting can be more useful for 'Ever Joy Enterprises' in terms of making
an effective and profitable decisions by management through examining the informations of all
departments. It is the process of making possible efforts in cutting out the necessary expenses
which in turn increasing profitability of company. Management accounting involves different
activities to perform such as designing of budgets and trend charts so that allocation of cost to
different departments can be easily made (Dražić Lutilsky and Dragija, 2012). To prepare
various reports, different management accounting systems should be adopted by management of
'Ever Joy Enterprises' which are mentioned as under:
2

Cost accounting system: Cost refers to the combination of efforts, time, funds and many
more and valuation of such aspects is called as cost. and so on who are esteemed as far as
expense of products and services. It refers to such system which distinguishes the expense
brought about in various business capacities which makes simple for managers to set up a
successful spending plan for future period of time. Utilizing such framework by the management
of Ever Joy Enterprises (UK) help in account, ordering, evaluating the expense of business
activities to accomplish immense productivity. Such system is classified into three costing
techniques which incorporates normal, actual and standard costing. Ever Joy Enterprises (UK)
deals with providing entertainment activities such as organising concerts therefore can be uses
such system in tracking cash inflow and outflow of an organisation and accordingly prepare
budget after identifying the availability of funds at present (Johnson, 2013). This will limits the
expense of business and increment benefit. It includes:
Direct costing: It refers to the cost which is directly allocated to the execution of project
activities such as software, equipment and raw materials. For example, Labour cost and material
cost will be the direct cost.
Standard costing: It refers to a practice of substituting an expected cost for an actual cost
in the accounting report and then comparing the actual with standard cost in order to identifying
the variances of causing differences. For an example, Ever Joy enterprise is going to organise a
musical concert in city, the standard costing according to their manager would be 20000 pound,
but actual costing they incurred is 15000 pound, so there is variance of 5000 pound in actual
costing and standard costing.
Inventory management system: Inventory is an accounting term that refers to goods that
are in various stages of being made ready for sale. It is an effective management accounting
system as it help company in analysing and measuring all non-capitalised inventory involved in
the execution of business activities. It includes two types of inventory management system such
as periodic system and perpetual system. Periodic system is more useful when the inventory
transactions are recorded on monthly or weekly basis whereas perpetual system can be used in
order to update managers whenever the inventory product is received or sold. Every Joy
Enterprises (UK) has various options to record inventory such as FIFO, LIFO and ABC Analysis
which help manager in identifying the current level of inventory with company so that clients
can be invited to get their entertainment services without any interruptions. It also help company
3

to create effective work order, preparation of bills of products and all supplied materials related
invoices (Klychova, Faskhutdinova and Sadrieva, 2014). Meeting customer requirements on
time through having adequate availability of inventory directly makes positive impact on the
profitability of company.
Job costing system: It may be defined as the process of identifying the total cost
allocated to offer individual service or group of services. It assist management in preparing
budget to produce something through analysing the cost incurred in previous year along with the
profit earned on selling such product. Ever Joy Enterprises (UK) is engaged in providing leisure
and entertainment services such as organising events or concerts thus it is more important for the
management to determine the cost invested in execution of offering such services to its clients
with the help of such accounting system. It includes batch costing and process costing. For
example, Ever Joy Enterprises (UK) can able to assign the cost to each service offered to its
clients. At the time of completion of event, comparison should be done with reference to
estimated cost, so Ever Joy Enterprises (UK) can get benefit through adoption of such costing
system.
P2: Different types of management accounting reports
Accounting reports is essential for an organisation to prepare in order to make easy for
management to formulate an effective plans and policies for the betterment of an organisation.
Having adequate information of each departments, it is more helpful for management to find out
the deviations if any, which restricts them to achieve desired target on time. Therefore, it must
required for the management of Ever Joy Enterprises (UK) to prepare various kinds of reports
which are described as under:
Performance report: It is considered as vital report which is set up by the management to
examine the execution of every employees with actual and desired. This will help in
distinguishing the deviation which confines workers to perform well and empower managers as
well to design effective plans accordingly. Such reports incorporates employees yearly
performance report, achievement report of allotted project and so on. Thus, it is more appropriate
reporting system which must be set up by Ever Joy Enterprises (UK) to bring out most extreme
result from their employees (Kuula, Putkiranta and Toivanen, 2012). For example, report
containing information about income earned and expenses incurred by marketing department on
particular marketing activities.
4

Inventory management report: This is the report which contains the important and exact
data about closing and opening stock with the organization. It help administration to oversee
stock development that are kept by Ever Joy Enterprises (UK). It helps in checking on the
present status of organization stock by area, time of entry and outflow of stock and so on. Ever
Joy Enterprises (UK) is occupied with giving recreation and entertainment services because of
which it is critical for management to keep up such kind of report to determine the productivity,
turnover, requirements for the stock. There are diverse procedures which are taken into
considerations by Ever Joy Enterprises (UK, for example, Just-in-time, EOQ, and Turnover ratio.
For example, Just In time direct manager to place order from the suppliers if any shortage
identified to directly supply to execution of different activities. It helps in reducing storage cost
of inventory which in results increasing profitability of company.
Account receivable report: This is the report which contains the accurate and reliable
data about the unpaid client bills and unused updates that help management to recuperate the
equivalent amount on certain time frame. It encourages management in recognizing the unpaid
indebted individuals and putting maximum in recovering the remarkable bills on due date. In this
way, the management of Ever Joy Enterprises (UK) must required to keep up such type of report
with the end goal to keep up their money related condition because of gathering unpaid amount
on time. This will likewise guides them to bring applicable improvements in their their existing
credit policies to stay away from any terrible obligations (Nixon and Burns, 2012).
Batch costing report: This is the report prepared by the management with a target of
tracking the overall cost associated with production process where individual product or group of
products are produced. It comprises of various classification, for example, labour cost, material
cost, production overheads and so on. Making of such report by Ever Joy Enterprises (UK) help
management to record entire cost invested in execution of various entertainment programs for
their loyal customers and control these expenses if required. This will help in expanding
gainfulness of organization.
M1: Importance of different management system
Advantages of different management system:
Costing accounting system: Using such system help management in setting up a viable
spending plan for the future business activities after breaking down the expenses incurred in past
5

years. This will help in limiting the chances of having wastage of cost which directly have
beneficial outcome on the benefit of organization.
Inventory management system: Using such system help organization to keep up
satisfactory measure of stock with them at the time of taking orders from their customers. This
will help in building trust and loyalty of focused customers through organising an effective
leisure activities on time.
Job costing system: This system help to recognize the aggregate expense incurred in
execution of individual or group of activities organization which makes simple for management
to settle on choice related with distribution of expense to execute distinctive business activities.
D1: Various reporting method and accounting system integration
As Ever Joy Enterprises (UK) utilizes management accounting system and reporting that
give helpful data related with financial position and current status to the investor and other
speculator. The connection among report and system of management inside as association
process is said to be integrated accounting system. Performance reports, stock management
report, debt claim report and so forth are more valuable for Ever Joy Enterprises (UK) to plan to
obtaining data about the actual position of business at present time. For instance, stock
management report and system help management to keep up satisfactory level of stock inside an
association with the goal that the production and distribution process are not disturbed. Another
example is performance report which contains the present performance level of employees. It
empowers managers to improve their performances through giving training and improvement
programs with the goal that the business capacities can be legitimately executed by their
workers.
TASK 2
P3: Techniques used to analyse cost with marginal and absorption costs
Cost: It refers to the sum which is sacrificed by an organisation to deliver something with
a desired target of procuring most extreme benefits. It incorporates numerous components, for
example, efforts, time, human capital and so on who are esteemed as far as expense of products
and services.
6

Fixed cost: A fixed cost is an expense or cost that does not change with an increase or
decrease in the number of goods or services produced or sold. For example, insurance, interest
expenses etc.
Variable cost: A variable cost is a corporate expense that changes in proportion with
production output. For example, rent, employee salaries etc.
Cost volume profit: It is a method of cost accounting that looks at the impact that varying
levels of costs and volume have on operating profit. Cost-volume profit analysis makes several
assumptions in order to be relevant, including that the sales price, fixed costs and variable cost
per unit are constant.
Flexibility budgeting: A flexible budget is a budget that adjusts or flexes for changes in
the volume of activity. The flexible budget is more sophisticated and useful than a static budget,
which remains at one amount regardless of the volume of activity.
In business association, all expenses are cost while all costs are not determined as
expenses as a portion of the expense are engaged with income generated process. Ever Joy
Enterprises (UK) is conducting a event show and other leisure programs which needed huge
requirements of cost to incur in order to achieve huge profitability. For this, the management of
Ever Joy Enterprises (UK) is required to formulate a spending plan with the end goal to
distribute expenses to every division and analyse their results with the aggregate expenses
distributed in order to determine the net income generated. There are diverse kinds of costing
techniques which consists of marginal and absorption costing method which help management in
ascertaining the net profitability of organization. It can be further explained as under:
Marginal costing: It is also known as variable costing method due to considering only
variable cost and ignores fixed cost while making calculation of net profitability of company
(Quinn, 2011). It is mostly used by an organisation when one extra unit of output are produced
in addition with main output. Under such method, direct labour and material involved, selling
cost and management overhead are included. With the help of using such costing method, the net
profitability of company increases which is the main reason of adoption by mostly of the
organisations.
7

Absorption costing: It includes all variable as well as fixed cost incurred in performing
different business activities therefore it is also known as full costing method. Under such costing
method, direct labour, material and fixed as well as variable production overheads are included.
It is considered as an effective costing method due to absorbing fixed and variable costing during
execution of business activities (Renz, 2016).
Ever Joy Enterprises (UK) is reviewing its concert event in Manchester region in order to
ascertain its viability which are given as under:
Particular Amount
Selling price (U) 20
variable cost (U) 10
Contribution 10
Fixed cost 60000
PVR: Contribution/ sales *100
: 10/20*100= 50%
(a): BEP: Fixed cost / contribution
: 60000/10= 6000
(b) Total number of ticket needed to be sold
Particular Amount
Selling price (U) 20
variable cost (U) 10
Contribution=profit + fixed cost 90000
Fixed cost 60000
Profit 30000
50%= Contribution/ sales
Sales= 90000/50%= 45000
(c): Calculation for desire profit
Particular Amount
8

Profit 8000
Add: Fixed cost 60000
Contribution 68000
Variable cost 10
Desire Profit: Sales*variable cost
Profit: 8000*10= 80000.
IMOH UK LTD.
Projected sales
summary for January Actual Variances February Actual Variances
Units 2000 2300 -300 2300 2300 0
Unit Price 20 20 20 20 20 0
Sales Budget 40000 46000 -6000 46000 46000 0
Total cost per unit 20000 23000 3000 23000 23000 0
March Actual Variances TOTAL Actual Variances
4000 3800 -200 8300 8400 100
20 20 20 20 20 20
80000 76000 -4000 166000 168000 2000
40000 38000 -200 83000 84000
83000 84000 1000
For the second quarter of 2018:
Projected sales
summary for January Actual Variances February Actual Variances March
Units 2000 2300 -300 2300 2300 0 4000
Unit Price 20 20 20 20 20 0 20
Sales Budget 40000 46000 -6000 46000 46000 0 80000
March Actual Variances TOTAL Actual Variances
4000 3800 -200 8300 8400 100
9

20 20 20 20 20 20
80000 76000 -4000 166000 168000 2000
M2: Analysis of various types of accounting tools and techniques
It has been examining that there are different sort of bookkeeping instruments which will
be considered as more profitable piece of successful basic leadership. Some of them are
examined beneath:
Marginal costing method: It is one of the accurate techniques which can help with
breaking down the aggregate net profitability of "Ever Joy Enterprises (UK)". Moreover, this
tool used to evaluate manager to decide the extra units of items that ought to be delivered as long
as marginal advantages exceeds the marginal cost.
Historical cost: This particular tools values an asset for overall balance sheet objectives
at the price which is been paid for the assets during the time of acquisition. By the help of this
tools, accountant used to record earning, expenses and other disposal value at historical cost.
D2: Analysis of data collection
In order to deal with different kind of assets those are arises within an organisation in
future period of time, it is more important to use of various costing methods. It would be
beneficial for "Ever Joy Enterprises (UK)". In order to determine the break-even point, the
company need to sell around total of 6000 units. To analyse the total sale of tickets they need to
sales about 45000. As well as in order to earn a desire profit with total of 8000 sales, Ever Joy
Enterprises (UK) can be able to get desire profit of 80000.
TASK 3
P4: Different planning tools used for budgetary control
Budget: It is an estimation of income and costs over a predetermined future time frame
with an expectation of using accessible assets in an optimum way. It discloses the costs
distributed to execute diverse business activities after examining the expenses invested in past
time frame. For business association, budget is considered as an internal tool which isn't required
for reporting by outside parties.
Different types of budget:
10

Capital budget: It refers to the procedure in which business decides and assess the huge
costs of speculations of business. These budget is used in acquiring new plant or investment in
long term venture. It is essential for the management of Ever Joy Enterprise to set up financial
plan likewise with the assistance of this organization come to think about their yearly capital
costs and speculation made by the organization (Windolph and Moeller, 2012).
Operation Budget: It refers to the all incomes and costs over some undefined time frame
which is utilized by organization to design its tasks. As it is useful for the management of Ever
Joy Enterprise also, it enables them to think about the income and costs generated and incurred
in execution of business activities during a year.
Budgetary control: It refers to the way towards differentiating the actual outcomes
through contrasting it and the planned figures in order to decide if plans are being pursued and if
not then the explanations for failures. It makes simple for organization to discover the reasons
which causes differences in actual output which guides management to make a viable
arrangements and activities to wipe out recognized deviations.
Therefore, it is more essential for the management of Ever Joy Enterprises (UK) to
prepare budgetary control process in order to ensure whether the actions has been taken as per
the plans and accordingly direct the employees to utilise cost in order to get best possible and
describe outcomes. It requires maximum support from the management who are able to
implement planning tools to control budget which are mentioned as under:
Forecasting tool: forecasting is considered as the most common and widely applied
process of estimating the future condition of the firm through gathering data from the past so as
to implement future business activities towards significant direction. As a small and medium size
organisation Ever Joy Enterprises (UK) applies this kind of tools as to estimating upcoming
events for their organisational future projects along with the factors that can affect their financial
stability. This process is appropriate for managers to create proper arrangement of adequate
amount of funds in advance so as to conduct upcoming event without facing any kind of
financial conflicts and problems. Merit: The implementation of forecasting tool is significantly based on the strength of
past data which is gathered by the qualitative methods as in this experienced and
qualified employees plays vast role in attaining growth and success by providing
11

appropriate data and information. This also provides appropriate chance to executing
future operations in effective manner. Demerit: This tool is majorly depend on the prediction that is uncertain due to which
unforeseen factors can give a forecast information which is useless in regards to the
quality of data. In some situations, the forecasting tool represents the interest rate which
will enhance whereas other tools and methods gives opposite results and outcomes thus
this create difficulty for management to relay on most suitable method.
Scenario planning tool: It depend on the assumptions that, what is going to be the future
of firm and how potential changes can be implemented over a period of time. It is the most
effective planning tool which helps in determining the uncertainties, different realities that might
take future financial losses to business concern. Therefore, Ever Joy Enterprises (UK) is concern
on applying this tool in respect to implement all the business operations in most effective and
efficient manner (Scenario planning, 2018).
 Merit: Scenario planning is an essential tool which is designed to energise the opinion
and thinking of employees within the work place through motivating them. Employees
motivation helps the firm in inventing new ways to execute future business activities in
appropriate manner.
 Demerit: Planning of scenario required expert forecast, sometime there may be lack
those scenario that result let improper decision making and may effect the future growth
of the Ever Joy Enterprises (UK).
Contingency planning tool: It is another effective planning tool for the Ever Joy
Enterprise as it helps in describing future possibilities which are contingent in nature. It help
company in achieving competitive advantage through dealing with contingent situation which
can leads to monetary losses. Merit: It helps company to bring more profitable and competitive advantage if
successfully deal with uncertain complexities.
 Demerit: It requires expert who are more capable to analyse future contingencies which
increases cost of company to hire such expert or professionals.
M3 Analysis of various planning tool and its application for forecasting
Budgetary control is more useful for every organisation as it help them in minimising the
business cost and enhances the outcome in near future. The management of Ever Joy Enterprises
12

(UK) can have multiple number of options to adopt different planning tools such as forecasting
tools, contingency and scenario tool. It assist management to make proper estimation about
future contingencies and accordingly deals with them in more effective and efficient manner.
TASK 4
P5: Different financial tools to resolve company's financial issues
Financial issues includes the situations which lowering down the stability of an
organisation in market. Failing financial crisis or losses, the company failed to make salary
payments to its staff, late payments of outstanding bills etc. In Ever Joy Enterprises (UK), there
are several financial issues may happened which decreases the operation level of company and
minimises the profitability. Some of the major problems that may face by Ever Joy Enterprises
(UK) are given as under along with an effective financial tool to resolve such issue:
Inappropriate support of employees: Non-performance of employees may failed
company to achieve its desired goals and objectives within pre-determined time period which
causes huge losses to company. It can be either due to having lack of guidance or motivation by
the management of an organisation which restrict them to achieve desired performance (Zainun
Tuanmat and Smith, 2011).
Inadequate amount of inventory: An organisation may losing its competitiveness among
its rivals when they are failed to provide demanded products and services by loyal clients. In
adequate amount of inventory causes failure in fulfilling the needs and requirements of clients
due to which the chances of losing loyalty of clients are more. Such situations can be arises due
to absence of inventory reports which contains relevant information about the amount of
inventory the company have at present.
Financial tools to resolve above mentioned issues:
Key performance Indicators (KPI): KPI tool is considered as an effective financial tool
which help managers to identify the actual performance level of employees through comparing it
with the standard performance level. In the first scenario, the company facing losses due to
having lack of support from its employees. Thus, Implementation of such tool is more effective
to identify variances in the employees performances which makes easy for manager to monitor
each employee performance on regular basis and accordingly making plans to bring motivation
among them to work hard and achieve desired outcomes.
13

Benchmarking: It is another effective financial tool which help manager to set target to
deal with future contingencies in more effective and efficient manner. It includes an effective
plans which is made after analysing the rival's competitive strategies, market changes, customers
behaviour etc. In the second scenario, the company facing losses due to having insufficient
amount of inventory with company due to which it failed to meet customer requirements on time.
Thus, implementation of Benchmarking tool help in directing the managers and employees to
maintain certain level of inventory with company at every point of time so that it makes easy for
company to deal with the changes arises in future demands of customers.
Financial governance: It is considered as a successful budgetary tool which help Ever
Joy Enterprises (UK) in gathering, overseeing, observing and controlling monetary data. It
empowers organization to track money related exchanges, overseeing execution and controlling
information, consistence, activities and disclosures. It incorporates different policies and
procedures which organization can use to deal with their business information and ensure that
information is accurate and reliable. Because of this, the genuine and exact financial position of
organization can be effectively figured out which makes simple for management to recognize
true and fair financial position of organization and empower managers of Ever Joy Enterprises
(UK) to take restorative activities if any deviations are identified which makes funds related
issues organization.
M4 Analysis of planning tool to deal with financial issue
The financial problem can be resolved through adoption of various financial tools such as
KPI and Benchmarking which help in bring motivation among employees to perform as per the
standards.
D3: Evaluation of planning tools for accounting respond appropriately to solving financial
problems
KPI and Benchmarking are more appropriate to adopt as financial tool by Ever Joy
Enterprises (UK) in order to resolve issues and maintain financial stability of company in
competitive market through identifying the deviations in performance level of employees and
allows managers to enhance their performance level.
14

CONCLUSION
It has been concluded from the above project report that Management accounting play a
significant role that supports an organisation in achieving strong financial position in competitive
market. For this, managers is responsible to adopt various accounting systems such as cost
accounting system as well as prepare various kinds of reports such as inventory management
report etc. It also requires management to adopt various financial tools such as KPI and
Benchmarking to eliminate all financial related problems.
15